UFP Industries (UFPI)

Building materials manufacturer UFP Industries (NASDAQ:UFPI) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 2.7% year on year to $1.60 billion. Its GAAP profit of $1.30 per share was 16.9% below analysts’ consensus estimates.

Company Overview

Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ:UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.

Traditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.

Other companies that manufacture wood building products include Boise Cascade (NYSE:BCC), Weyerhaeuser (NYSE:WY), and Louisiana-Pacific Corporation (NYSE:LPX)

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, UFP Industries’s sales grew at a decent 8.3% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. UFP Industries’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 14.1% over the last two years. UFP Industries isn’t alone in its struggles as the Building Materials industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, UFP Industries missed Wall Street’s estimates and reported a rather uninspiring 2.7% year-on-year revenue decline, generating $1.60 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

UFP Industries has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 17.8% gross margin over the last five years. Said differently, UFP Industries had to pay a chunky $82.18 to its suppliers for every $100 in revenue.

UFP Industries produced a 16.8% gross profit margin in Q1, down 3.1 percentage points year on year. UFP Industries’s full-year margin has also been trending down over the past 12 months, decreasing by 2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

UFP Industries has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.5%, higher than the broader industrials sector.

Analyzing the trend in its profitability, UFP Industries’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, UFP Industries generated an operating profit margin of 5.8%, down 2.4 percentage points year on year. Since UFP Industries’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

UFP Industries’s EPS grew at a spectacular 15.3% compounded annual growth rate over the last five years, higher than its 8.3% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

UFP Industries’s two-year annual EPS declines of 21.8% were bad and lower than its two-year revenue performance.

In Q1, UFP Industries reported EPS at $1.30, down from $1.96 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects UFP Industries’s full-year EPS of $6.15 to grow 16.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

UFP Industries has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.4%, subpar for an industrials business.

Taking a step back, an encouraging sign is that UFP Industries’s margin expanded by 2.6 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

UFP Industries burned through $176.1 million of cash in Q1, equivalent to a negative 11% margin. The company’s cash burn increased from $89.69 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although UFP Industries hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 22.7%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, UFP Industries’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

UFP Industries is a profitable, well-capitalized company with $934.3 million of cash and $234 million of debt on its balance sheet. This $700.3 million net cash position is 10.8% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We struggled to find many positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2.3% to $104 immediately after reporting.

Updated: May 22, 2025 at 11:02 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in UFP Industries.

UFP Industries’s business quality ultimately falls short of our standards. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s stellar ROIC suggests it has been a well-run company historically, the downside is its unit sales declined.

UFP Industries’s P/E ratio based on the next 12 months is 13.6x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $120 on the company (compared to the current share price of $96.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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